Risk management is optimized by:
- Hedging with a “portfolio strategy”, generally producing income, rather than an “insurance strategy” that guarantees a cost to hedge.
- Using highly effective, highly correlated hedges that qualify for hedge accounting treatment.
- Freeing up capital required for hedging by using exchange traded futures and options-based hedges.
- Using state of the art risk analytics to graphically demonstrate projected price performance.
- Complying with all accounting and regulatory rules.
- Where an “insurance strategy” is appropriate, minimizing cost by using extremely liquid and efficient exchange traded options to protect the downside risk while maintaining potential upside gains.